Shifting Paradigms: The New Era of Manager Relationships and Transparency
The Imperative for Enhanced Transparency and Accountability
The intricate dynamics between asset allocators and managers are undergoing significant transformation. As mentioned in a panel discussion by Venn by Two Sigma, the evolving expectations demand not just delivering results but narrating a coherent and reliable story that aligns with those results. According to Chief Investment Officer, accountability and transparency have moved from being industry differentiators to expected norms.
Eric Sterner of Apollon Wealth Management encapsulated the frustration that many allocators feel when the narrative they present to clients doesn’t match the delivered performance. The need for clarity, he noted, is more pronounced, emphasizing that managers must elucidate their performance paths to engender trust.
The Inclusion of Alternatives in Defined Contribution Plans
Alternative investments are progressively being integrated into the menus of defined contribution (DC) plans. The wide return disparities within alternative asset classes compared to public markets underscore the necessity for meticulous due diligence. Eric Sterner highlighted the stark range of returns in private credit and equity, illustrating the critical importance of due diligence for DC plans considering these assets.
The liquidity constraints of alternative investments pose a considerable challenge. Investors are essentially ‘married’ to a strategy, making the initial selection process crucial. Missteps can lead to long-term dissatisfaction among clients. Here, holistic portfolio approaches can provide the clarity needed for investors new to the realm of alternatives.
Technological Advancements Reshaping Manager-Allocator Dynamics
Technological advances are playing a pivotal role in transforming the allocator-manager relationship. The ability of managers to provide greater insights into investment strategies has become crucial. Allocators are advised to look to larger, more innovative entities such as Canadian pension funds, which are leading the charge with strategic relationships and co-investment strategies.
These evolving relationships reflect a desire for fewer partnerships but with deeper, more strategic engagements that span the liquidity spectrum. As stated in Chief Investment Officer, adopting such strategies can provide significant leverage for allocators navigating this new landscape.
The Road Ahead: A Decade of Transformation
Looking forward, the relationship between allocators and managers is set to continue this trajectory of change. Managers will likely place an increasing emphasis on value-adding insights, facilitated by advanced analytical tools. The industry-wide shift towards transparency and technology-driven engagement marks a new chapter in asset management.
This transformative era heralds opportunities for those who adapt swiftly and challenges for traditionalists lagging behind. Embracing this change is not just about survival—it’s about thriving in a landscape where clarity and partnership are more critical than ever.
